How to Start an S Corporation in New Mexico

(February 2025)

How-to-Start-an-S-Corporation-in-New-Mexico

In This Article

Introduction

You’d like to attain an S corp status for your business in the land of the towering rocky mountain peaks and sprawling desert landscapes? Congratulations! However, before you dive headfirst into the exciting realm of entrepreneurship, it’s crucial to choose the right corporate structure for your venture. One option that has gained immense popularity, especially among startups and small businesses, is the S corporation (S-corp).

Key advantages of having a S corp is that your business will benefit from pass-through taxation. Shareholders enjoy limited liability protection, safeguarding personal assets from business debts and liabilities. S corp shareholders may qualify for the QBI deduction, allowing them to deduct up to 20% of eligible business income from personal tax returns.

Unlike sole proprietorships or partnerships, S corps have perpetual existence, ensuring business continuity despite changes in ownership or management. Forming an S corp enhances credibility and professional image, as corporations are often seen as more established and reputable than other business structures.

SUMMARY

1. Understand the S Corporation
2. Decode the Eligibility Criteria
3. Create Your Business Entity
4. Obtain an Employer Identification Number (EIN)
5. Fill Form 2553 for S-Corp Election
6. Obtain business permits and licenses
7. Maintain Compliance
Recap

1. Understand the S Corporation

To delve into the nuts and bolts of forming an S-corp in New Mexico, it’s imperative to grasp the fundamental nature of this corporate structure. When it comes to S corporations, think of them more as a tax classification than a separate legal entity like an LLC or a traditional corporation. The IRS gives this status, and it comes with some pretty sweet financial perks for both corporations and LLCs, just in different ways.

Now, if you’re looking to set up shop as an S corp in New Mexico, you’ve got two main paths to take. You can start off by forming an LLC or corporation and then choose the S corp tax status.

But here’s the thing to remember, before you can even think about S corp status, you need to have your business structure sorted out. Since setting up an LLC is easier and lighter on the wallet compared to a full-blown corporation.

2. Decode the Eligibility Criteria

To embark on the journey of establishing an S-corp in New Mexico, your business must first meet certain eligibility criteria set forth by the IRS. These requirements are designed to maintain the integrity of the S-corp structure and ensure that only qualified entities can reap its benefits. Here are the key conditions your business must satisfy:

  • Your business must be incorporated within the United States, as foreign corporations are ineligible for S-corp status. Certain types of businesses, such as financial institutions, insurance companies, and domestic corporations engaged in international sales, are precluded from obtaining S-corp status.
  • Your corporation must have only one class of stock, ensuring equal rights and responsibilities among shareholders. The number of shareholders or members in your S-corp cannot exceed 100. Only permitted individuals, certain trusts, and estates can hold shares or membership interests in your S-corp.

3. Create Your Business Entity

To enable an S corp status in New Mexico, create a business as an LLC or corporation. When considering your business entity in New Mexico and the possibility of becoming an S corp, it’s important to weigh your options carefully. Before electing S corp status, you need to establish a legal entity. Note that you can register for an LLC online but corporations have to register in person or via mail.

If you choose to go the LLC route, which is often recommended, here’s what you’ll need to do:

Name Your LLC

Select a name that represents your brand well and complies with New Mexico’s naming guidelines. In New Mexico, there are specific guidelines to follow when selecting a business name like avoid profanities and offensive language, ensure the name is available within the state, steer clear of restricted words that require a license (e.g., doctor, attorney), refrain from using names that resemble governmental agencies or entities.

Choose a Registered Agent

Appoint someone, either an individual or a professional service, to act as your registered agent. This person will handle important legal and tax documents on behalf of your LLC. You can also choose to be an agent.

File LLC articles of organization

File LLC articles of organization by selecting a unique name and appointing a registered agent. Use online filing services for efficiency. Required documents vary but typically include details about the business.

Create an Operating Agreement

While not a legal requirement in New Mexico, drafting an operating agreement is highly recommended for S-corps. This document serves as the blueprint for your business, outlining crucial aspects such as management structure, voting rights, capital contributions, profit distributions, and procedures for membership changes or dissolution.

If you’re considering forming a corporation and then electing S corp taxation, follow these steps:

Name the Corporation

Adhere to New Mexico’s naming rules for corporations and ensure the availability of your desired name. In New Mexico, there are specific guidelines to follow when selecting a business name like avoid profanities and offensive language, ensure the name is available and unique within the state, steer clear of restricted words that require a license (e.g., doctor, attorney), refrain from using names that resemble governmental agencies or entities.

Appoint Board of Directors

Identify individuals who will serve as directors and officers, responsible for managing the corporation and making decisions.

Fill Articles of Incorporation

This document outlines essential details about your business, including its name, address, and the name and address of the registered agent. To file the Articles of Incorporation, you must submit the completed form along with the required filing fee of $50 to the New Mexico Secretary of State’s office.

Create Corporate Bylaws

Draft and adopt corporate bylaws to establish the operational rules and regulations governing your corporation’s activities.

Hold a Board Meeting and Issue Stock

Organize an initial board of directors meeting to ensure clarity and direction for decision-making. Issue stock to raise capital, recording details such as purchaser, number of shares, cost, and transaction date.

>>>PRO TIPS: How to Create an LLC

4. Obtain an Employer Identification Number (EIN)

To be able to file tax returns for your S corp, open business bank accounts, and hire employees, you have to acquire an Employer Identification Number (EIN). EIN is a nine-digit number assigned by the Internal Revenue Service (IRS) that serves as your S-corp’s tax identification number. You can apply for an EIN online, by fax, mail, or over the phone. The application of an EIN in New Mexico can be through the following:

  • Apply Online
  • Utilize Fax
  • File Through Mail
  • Use Telephone (International applicants only)

5. Fill Form 2553 for S-Corp Election

To officially identify as an S corp in New Mexico, you must fill and file form 2553. The final step in establishing your S-corp in New Mexico is filing Form 2553 with the IRS. This form, titled “Election by a Small Business Corporation,” officially requests S-corp tax treatment for your business.

It’s crucial to file Form 2553 within the specified time frame, which is typically within 75 days of forming your S-corp or no later than 75 days after the start of the tax year in which the election is to take effect. In New Mexico, the federal S corporation election is acknowledged, and there’s no need for a separate state-level S corporation election.

6. Obtain business permits and licenses

To ensure a smooth business operation, secure the necessary permits and licenses. Before commencing operations as a corporation, ensure you obtain necessary business permits and licenses. Requirements vary based on county, state, and maybe federal laws, and industry specifics. Refer to the New Mexico Secretary of State website (https://www.sos.nm.gov/) for detailed information on application processes and requirements.

7. Maintain Compliance

To run your S corp business successfully, ensure your organization follows due compliance. First things first, ensure that owners receive a “reasonable salary.”

Next up, don’t forget to run payroll. When it comes to taxes, be sure to file your federal taxes. Check out the IRS’s S corp taxation page for more detailed guidance. Every S corp needs to fill out Form 1120S for tax purposes. Remember employment taxes. S corps are required to pay these taxes quarterly, typically using Form 941.

Lastly, don’t overlook state taxes. Depending on your location, you may need to register for gross receipts tax, unemployment insurance tax, and withholding tax.

Recap

To start, understand the S Corporation structure and its tax benefits. Decode the eligibility criteria set by the IRS for establishing an S-corp in New Mexico. Select the entity you’d want to use.

Obtain an Employer Identification Number (EIN) from the IRS for tax purposes. Fill out Form 2553 to officially elect S-corp status with the IRS. Maintain compliance with tax obligations.

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